JOBLESS RATE STILL TROUBLES BERNANKE

Fed chair: Long-term unemployment is especially worrisome

In a speech that sought by turns to deflate optimism and pessimism about the labor market, Federal Reserve Chairman Ben Bernanke said Monday that the Fed’s efforts to stimulate growth were gradually reducing unemployment, but that the scale and duration of the problem could leave lasting scars on the economy.

“Recent improvements are encouraging,” he said. However, he continued, “millions of families continue to suffer the day-to-day hardships associated with not being able to find suitable employment.”

Bernanke said he was particularly concerned about the unusually large share of the unemployed who have been unable to find work for six months or more. More than 40 percent of the unemployed are in this category, compared with less than 25 percent after other recent recessions.

“Because of its negative effects on workers’ skills and attachment to the labor force, long-term unemployment may ultimately reduce the productive capacity of our economy,” Bernanke told a meeting of business economists in Virginia.

In describing the Fed’s efforts to improve growth as being important and productive, Bernanke countered recent speculation that the Fed might not continue those policies until at least the end of 2014. The Fed intends to hold short-term interest rates near zero through 2014, and has been investing in government debt to further reduce long-term interest rates.

Bernanke did not say the Fed was considering new measures, a subject of intense speculation among investors. But stock markets, the prime beneficiaries of the Fed’s easy-money campaign, liked the speech all the same. The Dow Jones industrial average rose 1.2 percent, and the Standard & Poor’s 500-stock index rose 1.39 percent.

“Those who are looking for a major shift in Fed policy will be disappointed,” Diane Swonk, chief economist at Mesirow Financial in Chicago, wrote in a brief commentary on the speech. She added, however, that Bernanke “will continue to resist and override dissenters in his own ranks to keep and perhaps even expand monetary policy accommodation.”

Critics, including some Fed officials, argue that the central bank’s policies are likely to cause inflation because the central bank is trying to stimulate growth in an economy already running near capacity.

Unemployment remains high, but those concerned about inflation say that general stimulus will not help because the problems are structural, including a lack of desirable skills.

Bernanke said Monday that structural unemployment might have increased in recent years, but that high unemployment was mostly a cyclical phenomenon, the result of the general economic malaise.